U.S. gears up for anthrax, smallpoxVaxGen top bidder so far as the feds build up Strategic National Stockpile.September 16, 2005: 3:38 PM EDT
By Aaron Smith, CNN/Money staff writer

Bubonic plague, carried by fleas like the one shown here, is not the disease you should be worried about.

NEW YORK (CNN/Money) -
So you heard about the bubonic plague-infected mice missing from a bio-terror research plant in Newark and now you're scared?

Don't be. Bubonic plague is not at the top of the government's list of worries. But you should be worried about anthrax and smallpox, designated by the Department of Health and Human Services as top threats to our national security, along with the dreaded Ebola virus.

So what does this mean from an investment standpoint? Billions of tax dollars are being spent to build up stockpiles of vaccines for counterterrorism.

"If there was an anthrax attack today, we would be about as well prepared as we were in New Orleans [for Hurricane Katrina,]" said Robert Leboyer, analyst for EKN.

Through Project Bioshield, the government plans to spend $5.6 billion through 2013 building up the Strategic National Stockpile. This includes $1.9 billion on vaccines for smallpox and $1.4 billion for anthrax. Also, hundreds of millions of dollars could be allocated for the development of an Ebola vaccine.

"Until recently, the vaccine business was kind of out of favor," said Sharon Seiler, analyst for Punk, Ziegel & Co. "I think it's bounced back with the contracts. People have renewed concerns about global pandemics."

Analysts expect the feds to award large contracts through 2007, followed by smaller contracts to maintain existing stock. The government is stockpiling vaccines without waiting for approval from the Food and Drug Administration, in order to get the latest advancements to the American population.

Glen Nowak, spokesman for the Centers for Disease Control and Prevention, said that vaccines expire within 18 months to two years, which is why the government has a "floating inventory" rather than a warehouse stuffed with a full supply.

So who's getting the government money?

On Thursday, the French drug maker Sanofi-Aventis (up $0.34 to $40.66, Research) was awarded a $100 million government contract to produce influenza vaccines at its plant in Swiftwater, Penn. But that pales in comparison to what the government is spending on counter-terrorism.

VaxGen, Inc. (down $0.08 to $14.17, Research) of Brisbane, Calif., is the Bioshield winner so far, having secured an $877.5 million contract last year to produce 75 million doses of anthrax vaccine. The government is expected to allocate hundreds of millions of dollars more for the maintenance of this stockpile.

In addition, VaxGen is trying to secure a contract to produce the smallpox vaccine.

"Clearly, there is a medical need to have a safer product than what's being used," said VaxGen spokesman Paul Laland, who said that his company's product is safer than Wyeth's (up $0.65 to $45.65, Research) Dryvax, the smallpox vaccine currently in the national stockpile.

VaxGen is partnering with Japanese drug maker Kaketsuken, which has had a smallpox vaccine approved in its home country since 1980. Laland said his company is currently producing the anthrax vaccine at an undisclosed location in California, and is ready to produce smallpox vaccine at an FDA-approved facility in Japan at any time.

Bavarian Nordic Research Institute (down $0.81 to $78.90, Research), a Berlin biotech, and Acampis, a privately held biotech in Cambridge, Mass. and the UK, are also competing for the smallpox vaccine bid. Analysts believe that VaxGen is the top player.

"I don't believe there's any other competitor for a smallpox vaccine that would be applicable for the entire population," said Leboyer, the EKN analyst.

In addition, Jeffrey Marshall, analyst for Fairview Capital Group, said the VaxGen has the "closest ties with the government."

No vaccine currently exists for Ebola, a virus that causes massive hemorrhaging with a kill rate of 50 to 80 percent. Crucell (up $0.03 to $24.22, Research), a biotech based in the Netherlands, is considered a lead candidate for developing a vaccine and cashing in on government contracts. Jeffrey Marshall, analyst for Fairview Capital Group, said an Ebola vaccine contract could range from $400 million to $500 million.

"I believe that Crucell's vaccine is superior," said Marshall. "The U.S. government has tested it in primates at Walter Reed Hospital. They vaccinated the animals with one dose of vaccine, injected them with a lethal dose of Ebola, and they all survived."

Seiler owns shares of VaxGen and her firm has done business with them. Marshall owns shares of Crucell.